Benefits of Timely Spin-outs

15 Sep Benefits of Timely Spin-outs

Here’s a brief, fictional scenario that’s worth noting. John’s proprietary product development activities open up a new market outside of the major brands that his company services. The company is now able to sell select products to direct retail outlet. John doubts that any buyer of the company would be willing to pay much, if anything, for this separate operation, and it’s the kind of thing that John would really like to keep for himself and kind of mess with as he slows down.

If John does nothing and ends up selling the business, he will end up having to bail out this separate operation as a taxable dividend to himself when the business is sold or perhaps transitioned to the kids, and this may be very expensive tax-wise.

In contrast, if he transfers this operation to a separate company and then spins that separate company out to himself, it can all be done tax-free provided – and here’s the big one – that the spin out occurs long before the sale or transition of the company, usually at least 2 years, and often it requires 5 years. There is no tax-free spin out potential at the time of the main event. Forward planning can pay off big on this one.

Nate Nead is a licensed investment banker and Principal at Deal Capital Partners, LLC which includes InvestmentBank.com and Crowdfund.co. Nate works works with middle-market corporate clients looking to acquire, sell, divest or raise growth capital from qualified buyers and institutional investors. He is the chief evangelist of the company's growing digital investment banking platform. Reliance Worldwide Investments, LLC a member of FINRA and SIPC and registered with the SEC and MSRB. Nate resides in Seattle, Washington.

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